Chaos in Yemen Drives Economy to Edge of Ruin

Even as Yemen's political crisis deepens, the country is on the brink of an economic collapse so dire it could take years to recover, and hobble efforts to rebuild its fragmented society.

After four months of mass protests and political deadlock, Yemen — already the poorest Arab country, a place where many people have become accustomed to mere subsistence — has had its domestic oil supplies and electricity network largely cut off by hostile tribes. Gas lines now extend for miles in the capital, Sana, provoking fights and new protests; electricity is available for only a few hours a day. Cooking gas and diesel for generators have also grown scarce, and with food prices rising fast, people have begun hoarding basic supplies, including water.

As foreign currency supplies dwindle, the elaborate system of patronage and corrupt payoffs that maintained a modicum of stability in Yemen is starting to crack, with former loyalists breaking off and fights erupting over a smaller and smaller pool of cash. The embattled president, Ali Abdullah Saleh, desperate to keep his supporters happy, has demanded multimillion-dollar loans from Yemen's top businessmen in recent weeks, according to Yemeni officials and members of the business elite.

The most fundamental of Yemen's diverse woes is lack of water. Since the political crisis began in January, the price of water has risen fivefold in some areas, tenfold in others. The drills that pump water from Yemen’s rapidly dwindling underground supplies are falling silent, because the diesel they require has grown so expensive and scarce. The area around Sana is especially arid, and it could become the first capital ever to run out of water, said experts at the World Bank.

"The bigger challenge than the political mess is the economic mess," said one Western diplomat who spoke on the condition of anonymity under standard diplomatic protocol. Even if the political situation stabilizes, the diplomat said, the opposition's hopes of increasing foreign investment and changing Yemen's endemic corruption will not be realized "in one month, six months or even the next year."

On Thursday, fighting still raged between government troops and opposition tribesmen in Sana. North of the city, government forces used tanks and artillery to repel a large group of armed tribesmen who were trying to reach Sana to aid Mr. Saleh's rivals, the Ahmar clan. And south of Sana, in the city of Taiz, there were reports that young protesters had begun taking up arms against the government for the first time.

Yemen's minister of trade and industry, Hisham Sharaf, estimated last week that the crisis had cost the economy $5 billion, or about 17 percent of the country's 2009 gross domestic product. Another minister, Amir al-Aydarous, said in May that Yemen was "on the verge of an economic catastrophe."

To make matters worse, Saudi Arabia in April ceased payments in its decades-old system of patronage to Yemeni tribal elders and other leading figures, according to tribesmen and a recent report issued by Chatham House, an international affairs institute based in London. Although the system was much criticized for its erosion of Yemen’s sovereignty, the cessation of payments left many around the country without a vital source of income.

Signs of economic crisis are everywhere. Most restaurants in the capital have closed, along with many businesses. Those companies that remain open complain that banks refuse to lend money. Most businesses stopped paying taxes months ago, according to the Yemeni Chamber of Commerce.

One importer, Anwar Abdullah Jarallah, said that he could no longer get dollars from the bank, and that his international partners wanted all their cash upfront because they were so nervous about being repaid.

"I'm scheduling my order to have, for example, 100 metric tons or something," Mr. Jarallah said. "I'm going to reduce it to a quarter because I need liquidity. I will import a small quantity just to keep business going."

Foreigners and the wealthy have moved their dollars offshore, forcing Yemen's Central Bank to hold onto its declining foreign reserves. That in turn is causing the Yemeni riyal to slide in value. On the black market, the price of a dollar rose to 250 riyals from 217 in just a few weeks.

Economists say that if the riyal reaches 300 to the dollar, an additional 15 percent of Yemen's 23 million people will be under the poverty line, living on less than $2 a day. Already, an estimated 40 to 50 percent of Yemen's people are under that line, though reliable statistics are difficult to obtain in Yemen and some economists put the figure even higher.

Since mid-March, when tribesmen allied with the opposition blew up a pipeline and disabled one of Yemen's two main oil-production facilities, the government has been forced to import almost all of its fuel. (The other main complex is used for exports.) That has further strained the government, which depends almost entirely on dwindling oil reserves for its revenues.

Mr. Saleh's own financial resources have become a constant source of speculation, since it seems clear that his political survival depends on his ability to keep paying supporters. One Yemeni official said he was approached recently by several foreign ambassadors who demanded to know if it was true that Mr. Saleh had plundered the Central Bank's foreign currency reserves for his own use. The official told the ambassadors it was just a rumor, he said. But most local economists say they have no idea how much money is left in the Central Bank, as they do not trust government figures.

For the poor, life has grown measurably harder in recent weeks. Marwan Ghazali, a 36-year-old taxi driver, said that he spent three days trying to refuel but that several stations ran out by the time he arrived at the front of the line. "The black market is the only place to buy gas now," he said, "but I don't want to buy it there, because they sometimes mix it with water."

One Yemeni woman who works at an international aid agency said the growing scarcity of water was her greatest worry.

"Without water, everything in the house seems to shut down," she said. "You cannot wash your clothes or wash the plates or cooking pots after dinner, and I am worried about my own personal hygiene and dignity. Even using the toilet has become a worry. I feel almost like a refugee in my own home."

Chaos in Yemen Drives Economy to Edge of Ruin

Even as Yemen's political crisis deepens, the country is on the brink of an economic collapse so dire it could take years to recover, and hobble efforts to rebuild its fragmented society.

After four months of mass protests and political deadlock, Yemen — already the poorest Arab country, a place where many people have become accustomed to mere subsistence — has had its domestic oil supplies and electricity network largely cut off by hostile tribes. Gas lines now extend for miles in the capital, Sana, provoking fights and new protests; electricity is available for only a few hours a day. Cooking gas and diesel for generators have also grown scarce, and with food prices rising fast, people have begun hoarding basic supplies, including water.

As foreign currency supplies dwindle, the elaborate system of patronage and corrupt payoffs that maintained a modicum of stability in Yemen is starting to crack, with former loyalists breaking off and fights erupting over a smaller and smaller pool of cash. The embattled president, Ali Abdullah Saleh, desperate to keep his supporters happy, has demanded multimillion-dollar loans from Yemen's top businessmen in recent weeks, according to Yemeni officials and members of the business elite.

The most fundamental of Yemen's diverse woes is lack of water. Since the political crisis began in January, the price of water has risen fivefold in some areas, tenfold in others. The drills that pump water from Yemen’s rapidly dwindling underground supplies are falling silent, because the diesel they require has grown so expensive and scarce. The area around Sana is especially arid, and it could become the first capital ever to run out of water, said experts at the World Bank.

"The bigger challenge than the political mess is the economic mess," said one Western diplomat who spoke on the condition of anonymity under standard diplomatic protocol. Even if the political situation stabilizes, the diplomat said, the opposition's hopes of increasing foreign investment and changing Yemen's endemic corruption will not be realized "in one month, six months or even the next year."

On Thursday, fighting still raged between government troops and opposition tribesmen in Sana. North of the city, government forces used tanks and artillery to repel a large group of armed tribesmen who were trying to reach Sana to aid Mr. Saleh's rivals, the Ahmar clan. And south of Sana, in the city of Taiz, there were reports that young protesters had begun taking up arms against the government for the first time.

Yemen's minister of trade and industry, Hisham Sharaf, estimated last week that the crisis had cost the economy $5 billion, or about 17 percent of the country's 2009 gross domestic product. Another minister, Amir al-Aydarous, said in May that Yemen was "on the verge of an economic catastrophe."

To make matters worse, Saudi Arabia in April ceased payments in its decades-old system of patronage to Yemeni tribal elders and other leading figures, according to tribesmen and a recent report issued by Chatham House, an international affairs institute based in London. Although the system was much criticized for its erosion of Yemen’s sovereignty, the cessation of payments left many around the country without a vital source of income.

Signs of economic crisis are everywhere. Most restaurants in the capital have closed, along with many businesses. Those companies that remain open complain that banks refuse to lend money. Most businesses stopped paying taxes months ago, according to the Yemeni Chamber of Commerce.

One importer, Anwar Abdullah Jarallah, said that he could no longer get dollars from the bank, and that his international partners wanted all their cash upfront because they were so nervous about being repaid.

"I'm scheduling my order to have, for example, 100 metric tons or something," Mr. Jarallah said. "I'm going to reduce it to a quarter because I need liquidity. I will import a small quantity just to keep business going."

Foreigners and the wealthy have moved their dollars offshore, forcing Yemen's Central Bank to hold onto its declining foreign reserves. That in turn is causing the Yemeni riyal to slide in value. On the black market, the price of a dollar rose to 250 riyals from 217 in just a few weeks.

Economists say that if the riyal reaches 300 to the dollar, an additional 15 percent of Yemen's 23 million people will be under the poverty line, living on less than $2 a day. Already, an estimated 40 to 50 percent of Yemen's people are under that line, though reliable statistics are difficult to obtain in Yemen and some economists put the figure even higher.

Since mid-March, when tribesmen allied with the opposition blew up a pipeline and disabled one of Yemen's two main oil-production facilities, the government has been forced to import almost all of its fuel. (The other main complex is used for exports.) That has further strained the government, which depends almost entirely on dwindling oil reserves for its revenues.

Mr. Saleh's own financial resources have become a constant source of speculation, since it seems clear that his political survival depends on his ability to keep paying supporters. One Yemeni official said he was approached recently by several foreign ambassadors who demanded to know if it was true that Mr. Saleh had plundered the Central Bank's foreign currency reserves for his own use. The official told the ambassadors it was just a rumor, he said. But most local economists say they have no idea how much money is left in the Central Bank, as they do not trust government figures.

For the poor, life has grown measurably harder in recent weeks. Marwan Ghazali, a 36-year-old taxi driver, said that he spent three days trying to refuel but that several stations ran out by the time he arrived at the front of the line. "The black market is the only place to buy gas now," he said, "but I don't want to buy it there, because they sometimes mix it with water."

One Yemeni woman who works at an international aid agency said the growing scarcity of water was her greatest worry.

"Without water, everything in the house seems to shut down," she said. "You cannot wash your clothes or wash the plates or cooking pots after dinner, and I am worried about my own personal hygiene and dignity. Even using the toilet has become a worry. I feel almost like a refugee in my own home."